Here’s the Truth
A lot of what I know about investing I learned from women: my mother, personal finance pioneers Sylvia Porter and Jane Bryant Quinn, and a host of smart Certified Financial Planners.
They weren't timid. They took risks. They made money.
Yet we're so often told that women are fundamentally different from men when it comes to personal finance. We're supposed to be more risk averse, less knowledgeable, and less interested in investing than men are. Reality is a lot more nuanced than these stereotypes would suggest — and some recent research is turning persistent misconceptions on their heads.
Here are three common myths about women and money — happily debunked.
The Stereotype: Women Are More Risk Averse
Many studies have found statistically significant differences in how men and women view risk. But economists and pundits have a habit of extrapolating those findings into the broad-brush statement that "women are more risk averse than men."
Clearly, this isn't universally true. As economist Julie Nelson pointed out, "just one example of a cautious man and a bold woman disproves it." Nelson, chairwoman of the economics department at the University of Massachusetts Boston, also took the trouble to review 24 papers that studied gender and risk. She found the much-touted differences were actually relatively small.
"Instead of difference, similarity seems to be the more prominent pattern, with well over half of men and women 'matching up' on risk-related behaviors in every study," Nelson wrote in her paper, "Are Women Really More Risk-Averse than Men?"
The Reality: Some Women Are Big Risk-Takers
At least one group of women seem to be greater risk-takers than their peers: those who earn more than $200,000.
A recent Spectrem Group survey of about 400 high-earning women found more than half (54 percent) said they were willing to take a significant risk to earn a higher return on their portfolios. Compare that to just one-third (32 percent) of all other affluent investors who said the same thing. The high-earning women were also more likely to own higher-risk investments, including commodities, hedge funds, and venture capital, than their affluent peers.
The Stereotype: Women Are Less Knowledgeable About Investing
Numerous studies have shown that women tend to be less financially knowledgeable than men (although financial literacy in both sexes is abysmally low, both in the U.S. and abroad). Women are also more likely than men to say they're ignorant about finances.
But many women may know more than they think. In one study of financial literacy in eight countries, women were less likely to correctly answer a question about diversification (whether buying a single company's stock usually provides a safer return than a stock mutual fund). And women were more likely than men to answer "Do not know." But when researchers took away that option, women answered correctly as often as men, said Annamaria Lusardi, the study's co-author and an economics professor at the George Washington University School of Business.
The Reality: Some Women Know a Lot
High-income women once again buck the trend. Spectrem's study found 75 percent said that they were very or fairly knowledgeable about financial products or investments, compared to 68 percent of all other affluent investors.
The Stereotype: Women Are Less Interested in Investing
If you buy the notion that women are scared of risk and lack confidence in their financial knowledge, it makes sense that we would be less likely than men to be actively engaged in investing and more likely to hand off those responsibilities to someone else.
Research suggests otherwise. A Merrill Lynch survey of 5,000 investors showed roughly half the women who responded said they wanted to take part in making changes to their investment approach, compared to 55 percent of men. Once again, there's a gap, but not an enormous one.
The Reality: Some Women Are More Hands-On
The gap disappears when high-income women are compared to their peers: 43 percent of the women in Spectrem's study said they enjoyed investing and liked to be actively involved in the day-to-day management of their finances. That compared to 38 percent of other affluent investors who said they enjoyed investing and 42 percent who wanted to stay involved day to day.
Bottom line? Plenty of women are smart about and involved in their money. They take risks, educate themselves, and take charge. There’s nothing stopping you from becoming one of them.